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Fraud Deterrence: Reduce the Risk of Fraud Before It Occurs – Part 2 Cash Disbursements

By Chrissie A. Powers, CPA/CFF, CFE, CVA

This article is Part 2 of my previous article on beefing up your business' internal controls. Powers Forensic Accounting, LLC is able to help safeguard your assets from fraud or employee abuse. Let's focus on another area ripe for fraud, cash disbursements.

The form that businesses are making payments to vendors and creditors is also continuing to evolve. Today payments are made in the form of cash, checks, credit cards, ACH credits, bitcoins and cryptocurrencies. For purposes of this article, I am going to focus on checks and ACH Credits.

Minimizing Fraud if Writing Paper Checks

If your company is still writing paper checks, the check stock should be locked up at all times. Destroy signature stamps if your organization has them lying around as they only aid fraudsters in their crime.

It is important to note that mail theft is huge right now. A large number of checks are being stolen in the mail and the liability with checks stolen is on the customers, not the bank.

Paper Check Fraud Prevention

Positive Pay is one option of check fraud prevention. A detailed electronic file of the checks issued by your company is sent to your bank. The bank verifies the checks presented for payment against your company's file. The bank verifies the check number, date, payee, and dollar amount. If there are any abnormalities, an exception notification is sent to the company by the bank. The company will then approve or decline payment on the check(s) that didn't match their original check file. The majority of the verification process is performed by the bank. There are fees associated for this type of service. It is important to note that Positive Pay doesn't protect from internal fraud committed by an employee who is able to write checks and send the check file to the bank.

If your organization still writes paper checks and is looking for a less costly method of security, Reverse Positive Pay is an alternative. With Reverse Positive Pay, a list of the checks presented to the bank for payment is sent to the organization. The majority of the verification process is performed by the organization. The organization is responsible to review this list and has a specific time deadline to reply back to the bank with any suspicious checks. If the bank doesn't hear back from the organization, the bank assumes the checks presented for payment are proper.

Automated Clearing House (ACH) Payments/ Credits

ACH Payments are an electronic funds transfer that can deter fraud when sending payment to a vendor, creditor or employee. Your company authorized the payee to electronically transfer fund from your account for services and credit to their account. It eliminates the time spent writing, printing and signing checks and reduces postage. ACH transactions are relatively low cost and have a monthly maintenance fee for a maximum number of transactions. It allows the organization to have better control when money leaves their account, when it clears or whose hands it might get into.

ACH origination in general can allow you to future date a file for ACH credit settlement.

Bank Account Reconciliations

Regardless of how your organization makes cash disbursements, the bank account should be reconciled timely. It is important that someone other than check writer/initiator and check signer/authorizer open the bank statement. This implements segregation of duties within your organization. Report any discrepancies as soon as possible; don't wait.

Many fraud deterrent services are offered by your bank so be sure to check with your banker. If your client's organization would like to beef up internal controls or suspects fraud, Powers Forensic Accounting, LLC can assist. If you have additional questions or concerns regarding fraud detection and deterrence, don't hesitate to contact Chrissie A. Powers, CPA/CFF, CFE, CVA at 614.745.5192.

Chrissie A. Powers, CPA/CFF, CFE, CVA

Chrissie A. Powers, CPA/CFF, CFE, CVA

Powers Forensic Accounting, LLC

421 West State Street, Suite 216
Columbus, OH 43215


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